Medical device makers fear new tax would cripple them

For an established company like Exactech, an excise tax scheduled to start next year on medical devices could cost more than $3 million and lead to fewer new jobs, CEO Bill Petty says.

By Anthony ClarkBusiness editor

For an established company like Exactech, an excise tax scheduled to start next year on medical devices could cost more than $3 million and lead to fewer new jobs, CEO Bill Petty says.

For an early stage company like TrueMotion Spine, the cost of the tax could cool interest from investors, slowing development of implants to restore spinal mobility, President Stephanie Warrington says.

The medical device industry is seeking to have repealed a 2.3 percent tax on their products that will start in 2013 as part of the Affordable Care Act, saying it will cost thousands of jobs and stifle the development of products designed to improve patients' lives.

Warrington said Florida would be disproportionately impacted by the tax because of the size of the medical device industry in the state.

According to the Florida Medical Manufacturers Consortium, Florida has 528 medical device manufacturers — second-most in the nation — employing more than 20,000 people.

They include some of the largest private companies in Alachua County — Exactech, RTI Biologics and Invivo — and growing startups such as AxoGen and HyGreen. At least a dozen medical device companies are included among the area's life sciences businesses, according to the Florida BioDatabase.

The tax was included in the Affordable Care Act of 2010 and is expected to raise nearly $30 billion over 10 years to help pay for health care for the uninsured.

Proponents of the tax say the expanded pool of insured people will increase demand for devices and ultimately help the manufacturers.

Russell Allen, president and CEO of the BioFlorida trade association, said the industry universally disagrees.

“The costs will be passed to the consumer and defeat the purpose of health care reform,” he said.

Allen was among a contingent that lobbied Florida's congressional delegation on several issues, including a repeal of the tax, several weeks ago.

Rep. Erik Paulsen, R-Minn., proposed a bill to do just that. The bill has 240 sponsors, including Florida Rep. Cliff Stearns of Ocala.

The House Ways and Means Committee voted Thursday to send the bill to the full House and Senate.

Reuters reported that passage was viewed as probable in the House, possibly as soon as this week, but that it faced an uphill climb in the Democrat-controlled Senate.

The Florida Medical Manufacturers Consortium sent a letter dated March 30 to Florida Sens. Bill Nelson and Marco Rubio urging their support for the measure.

More than 400 medical device firms signed a petition in support of repeal through the Medical Devices Group, including local companies Exactech and AxoGen. The group estimates the tax would cost 43,000 jobs.

The Washington Post reported that at least three firms already have announced layoffs in anticipation of the tax, including Stryker Corp. with 1,000 jobs, or 5 percent of its workforce.

AxoGen, a nerve repair company based in Alachua, has grown quickly in a few years to just fewer than 70 employees.

CEO Karen Zaderej said the problem is that the tax would take money from all sales instead of just profits, which would hurt the young company's expansion efforts as it works toward break-even.

“In general in the industry, I think we all recognize that there are challenges to paying for health care, and there's going to need to be reform, but this tax does seem to be punitive,” she said.

Petty wrote in an op/ed piece that Exactech paid $4.5 million in taxes on $13.3 million in pre-tax profits last year. Combined with what would have been an additional $3.1 million from the device tax, the company's effective tax rate would have been 49 percent of profits.

The U.S. Supreme Court is expected to rule on the entire health care law late this month.